Litigation
Consulting
Since 2009, we have been involved in over 100 matters and continue to assist clients and their legal counsel with disputes and regulatory investigations.
More recently, clients have actively sought our advice in preventively dealing with potential valuation disputes.
Clients routinely commend our services for having narrowed down the scope of disputes and/or facilitated an early and satisfactory settlement.
​
Some illustrative examples of previous projects are shown below.
Valuation and Market Conduct: CDS on RMBS
In a dispute between a hedge fund and an investment bank over breach of contract with respect to a CDS on RMBS transaction, we provided expert opinion regarding the changes in the underlying RMBS market in 2009 that could have caused changes to the the value of the CDS.
​
Our experts ran a series of scenarios to determine the relative impact of changes to each of the primary assumptions and analysed the sensitivity of the price and yield to each factor.
Our analysis demonstrated that the hedge fund had ‘cherry picked’ assumptions when valuing the RMBS to increase the value of the CDS in their favour.
​
Valuation: Structured CMS/Credit Notes
Structured notes, paying a coupon linked to the 10Y – 2Y constant maturity swap rate, had an option to terminate if the rating of the referenced bonds fell below a certain threshold. A dispute arose regarding the timing of the termination following the downgrade of the bonds.
​
Our experts provided context on the rationale of the product and provided a valuation of the product on various possible termination dates.
This involved complex modelling of the constant maturity swap coupon and opining on the valuation of the package as a whole.
​
Mis-selling: FX Derivatives
In a dispute between a corporate and a European bank over the mis-selling of several FX derivatives, we were asked to explain the rationale and risks of multiplicity knock-out options.
Our experts utilised their industry knowledge to provide the court with a background as to how such products evolved due to the carry trade and explained the building blocks behind them.
Our analysis involved valuing the products and analysing how the product performed in different market conditions.
We have delivered insight and valuation expertise from a market practitioner’s perspective across a variety of asset classes.
​
Our work has included providing expert reports, consulting and expert testimony.
​
Roll over to see some example projects.
Product Expertise
Close-Out of Financial Transactions: Interest Rate Hedging
We have been involved in several disputes surrounding the close-out of large derivative portfolios where we have explained how such portfolios would be hedged in practice.
Through the use of statistical analysis, we have demonstrated how a small number of market hedges can be used to hedge a large proportion of a portfolio’s risk, thereby reducing the cost of hedging.
In one matter, we calculated that a sophisticated bank could have hedged a portfolio of 5,000 trades with 4 instruments, reducing the cost of the hedging by over 50%.
​
Hedge Fund Valuation
In a dispute regarding the duties of a valuation agent in relation to a hedge fund involving allegations of fraud, we were engaged to provide expert opinion on the services a market participant would expect a valuation agent to perform.
We analysed agreements between valuation agents and hedge funds and drew on the experience of our professionals to opine on the services that a valuation agent at the time would have been expected to perform.
We also assessed the reasonableness of the assumptions made by the hedge fund in a hypothetical damages scenario by comparing their performance with a market benchmark.
​
Real-Time Close-Out
A top-tier investment bank engaged us to provide independent close-out calculations, pursuant to an ISDA Master Agreement, following the occurrence of an Additional Termination Event. We used our experience of close-out disputes to highlight to the client the common issues which arise in such cases.
Using our in-house modelling platform we independently valued a portfolio of interest rate and inflation swaps, making adjustments to account for factors such as inflation seasonality and payment delay.
We also considered issues surrounding FVA and CVA and how they would impact close-out value.
We have a network of banking and hedge fund industry experts who can be called upon to provide on point, first-hand experience.
Our specialist team, who have worked on numerous disputes and consulting projects, provides support to our experts.
​
Roll over to see some example projects.
Market Practice
Benchmark Fixing
A top-tier investment bank engaged us to provide a picture of trading activity and market environment in light of an investigation by regulating authorities on alleged derivatives benchmark manipulation.
We were asked to explain the meaning of specialised expressions and industry jargon in chats between traders and to give a picture of the market environment around the time of the alleged manipulation.
We used the trading experience of our experts to interpret and translate to plain words the meaning of specific trading slang and considered the possible trading strategies which the chat participants had in mind.
​
Fraud: Trader Behaviour
An investment bank conducted disciplinary proceedings against a former employee in respect of several trades that could have moved the market during a sensitive trading window. We assisted the bank’s investigation panel with respect to the reasonableness of the trading activity (i.e. hedging of the swap book).
We opined on whether the activity in question could have been considered a hedge by considering the effectiveness of the alleged hedge.
We also considered whether the trader’s actions could have had any impact on the market price by considering the type and depth of other orders in the market and market events at the relevant time.
​
Workings of an Auction
We have been involved in several matters where we have been asked to opine on whether a trader’s actions could have been responsible for market moves.
In these analyses, we studied the auction process and identified factors contributing to the price move.
Using Extreme Value Theory, we investigated whether the market was inherently ‘badly behaved’ and the probability that the market would fall if the trader had not acted in the way they did.
Due to the increased regulatory focus on banks, we have seen an increase in disputes in areas such as benchmark fixings, client communications, staff conduct and reporting. Our experts work with clients to provide the benefit of their expertise and experience whilst maintaining the independence required in a regulatory investigation.
Additionally, our team of specialists can apply their quantitative expertise to analyse market data and objectively describe to clients the outcome of their investigations.
​
Roll over to see some example projects.
Regulatory Investigations
Functioning of an Algorithm
A global investment bank asked us to investigate the suitability of an algorithm used in its securities lending business.
Our experts reconstructed the client's algorithm, highlighted the weaknesses within their processes and assessed the potential damages that the bank could be liable for.
Using our advice the bank could determine the compensation applicable to their own clients, mitigating the risk of future litigation.
Our team proposed improvements to the algorithm, which the bank implemented and used to demonstrate the appropriateness of their algorithm to the FCA.
​
Portfolio Valuation: Exotic FX Derivatives
We were asked to value a portfolio consisting of more than 1,000 FX derivatives over a two-year period, including exotic options such as barrier options, digital options, dual currency trades and target profit trades.
This involved building an investment bank standard valuation model, taking in more than 40 million distinct market data points for 61 currency pairs.
The results of our valuation analysis provided the client with the potential losses if the portfolio had been closed out when certain thresholds were breached.
​
Breach of Mandate
In a dispute between a pension fund and an asset manager over losses on a portfolio selected by the asset manager, the pension fund presented an alternative portfolio, which they claimed would have generated lower losses.
We investigated a universe of possible eligible securities and built a Monte Carlo engine to construct alternative random portfolios to demonstrate the range of possible loss outcomes and the probability of each occurring.
Our specialist team thrive on reviewing large scale complex data problems and are experienced at explaining multifaceted issues in simple terms or visually using graphics.
We have invested heavily in developing a library of proprietary quantitative models, which have allowed us to value numerous types of trades and provide valuation and quantum support to our clients.
​
Roll over to see some example projects.